Des Moines Register, IA
07-04-07
'Destiny' to hurt poor the most, economist says
Those living on fixed incomes spend more of their money on taxable goods, they
say.
By MELISSA WALKER
REGISTER STAFF WRITER
The 44,500 low-income people in Dallas, Warren and Polk counties would
shoulder the heaviest load from the proposed "Yes to Destiny" sales-tax
increase, economists and a national tax group say.
Yes to Destiny, which voters will decide Tuesday, would increase the state sales
tax from 6 percent to 7 percent to generate $750 million over 10 years. The plan
would reduce property taxes, boost city budgets, and create a stream of money
for Blank Park Zoo, Living History Farms and other regional attractions, outdoor
recreation such as bicycle trails, and cultural and arts groups.
Economists, tax research groups and the Internal Revenue Service say sales
taxes hurt poor people who spend a larger portion of their income on taxable
goods and services. The federal government's poverty guideline stood at $9,310
for a single-family household in 2004, which accounted for the three-county
region's 44,500 low-income residents.
People such as Diana Krebs, 56, who lives in a low-income apartment complex
on Des Moines' southeast side, will likely feel the tax increase the most, if voters
Tuesday approve the proposal.
"I'll be honest. It's going to hurt," Krebs said. "I live on a very limited income. It's
the middle class and the lower class that's going to be feeling this the most" if
Yes to Destiny is approved.
Krebs' husband died last fall from a heart attack. She lives with her three cats
and worries about an extra penny per dollar when she pays for their food and
litter. The couple was forced to sell their home in 1994, Krebs said. She pays
$249 per month for rent through a federal subsidy program and gets $88 for food
stamps.
Yes to Destiny advocates say renters could benefit if landlords pass on the
property tax savings. However, nothing in the plan would compel or encourage
that to happen.
The rest of Krebs' monthly $688 disability check goes to utilities, medical bills,
food, over-the-counter drugs, her husband's funeral bills and occasional "extras"
such a meal at the Hy-Vee Kitchen. There's little money to enjoy a night at the
Civic Center or a day at the zoo.
"I had to break down and buy a pair of shoes," she said. "I had to put off the
electric bill and the phone bill" to pay for them.
The Yes to Destiny tax increase would cost Krebs an estimated $50 per year. Or
two pairs of shoes.
"Let the people who use the bike trails do fundraisers to pay for them," she said.
"I think it hurts more people than the benefits outweigh."
Most groceries, such as bread, milk, meat and prescription medicines are exempt
from Iowa's sales tax. But the sales tax applies to an array of everyday
purchases, from clothing and cosmetics to over-the-counter medicines, toilet
paper and diapers. Fast food, drinks with less than 50 percent juice, and certain
candies also are taxed.
Cars, trucks, farm equipment and gasoline are exempt, but other big-ticket items
such as home appliances are taxed.
In general, under the Yes to Destiny plan:
- Homeowners would see lower property tax bills, but the savings could be offset
at the cash register.
- Business owners would save on property taxes, but they would pay more for
goods and services. Most would probably see a net gain.
- City and county elected leaders would get an infusion of cash to spend in ways
that, theoretically, could help keep property tax bills down.
A sales tax can be a more palatable way to finance government because, unlike
property taxes, it's paid in small increments, said Kelly Davis of the Institute on
Taxation and Economic Policy, a Washington, D.C., nonprofit group that studies
the effect of taxes on personal income.
"It's really up to the individual to decide if they'd rather have more services and
depend on this regressive revenue source," she said.
Exemptions "make the tax less onerous on the poor, but it doesn't make it less
regressive," said David Swenson, an Iowa State University economics
professor. "We can pat ourselves on the back that we don't tax groceries and
medicine ... but we tax nearly everything else."
Bill Fox, director of the Center for Business & Economic Research at the
University of Tennessee, said the medicine and food exemptions don't
necessarily help low-income people, who "may not even pay for medicine, since
it is often paid for by Medicaid, and much of the food consumed by low-income
households is paid for with food stamps."